In a few days, it will be a fortnight since the dramatic moment of 8 November when Prime Minister Narendra Modi, in a live telecast on television, announced partial demonetisation—withdrawing currency notes of Rs1,000 and Rs500 denominations.
Like every action of Modi, this, too, is proving to be polarizing. It is not just in the media, but even on social media channels such as WhatsApp groups, people have begun to adopt extreme views on the subject—often based on rumours and, sometimes, plain lies.
Nonetheless, it is important to ask the question as to whether there is a subtext which is getting drowned out by the noise and distraction of this ongoing rhetorical exchange.
Indeed there is: it is the political battle for the minds and hearts of new India; a face-off between the Bharatiya Janata Party (BJP), the new pole of Indian politics, and its opposition—including its traditional rival, the Congress party, as well as regional satraps such as Mamata Banerjee. Seen this way—where there is so much at stake—it is easy to understand the rhetoric.
The political opposition has been caught unawares by the move to demonetize the country’s two key transactional currency denominations.
Yes; there will be fiscal losses to be borne; but who is going to admit to holding illegal wealth, leave alone defending it?
The bigger threat is that Modi may be running away with the political initiative; and, like in anything else, playing catch-up is never a winning strategy.
Consequently, the counter has been vitriolic and carefully crafted around the dislocation caused by the demonetisation. (Clearly, the roll-out of demonetisation could have been substantially better and, for this, the bureaucracy running the Reserve Bank of India and the ministry of finance are jointly culpable.)
Given that the Parliament is in session, it has provided the opposition a very high-profile platform to vent.
But the clock is ticking: not just because the winter session will conclude by mid-December, but also that the current bottlenecks so visible in urban areas may ease or shift to rural areas and, consequently, fade from the public eye.
On the other hand, from Modi’s point of view, it is a fact that he has enviably staked his claim to the high moral ground.
After preaching so successfully against corruption and elite capture of India in the general election, Modi has now begun walking the talk (no matter how clumsily). And in this, he has cleverly positioned himself as a vanguard of the bottom of the pyramid and the aspirational class (what he defines as the neo middle class).
Unlike never before, this demographic segment is emerging as a key factor in the Indian economy as disruptions (like the share economy symbolized by taxi share service) and structural reforms inspiring a transition to a rules-based regime (like the roll-out of the goods and services tax, or GST) take root.
Precisely to target this segment, he made it a point to bring up demonetisation in the election rally in Agra on Sunday.
Highlighting the fact that all of a sudden banks are flush with deposits, he said, “Now, as the banks are cash-rich, they will distribute it as loans to our entrepreneurs and youth."
In politics, perceptions matter: it is not what you are doing, but what you are seen to be doing.
While the economists can slug it out on the impact on the Indian economy, it has undeniably left a feel-good moment with most Indians—precisely because, in popular perception, the corrupt and the elite are at the receiving end. Probably why, despite the provocations from some political parties, we have, so far, not seen things descend to chaos as people queue up outside banks to withdraw cash.
But every political action has its consequences. In this case, the trader class, particularly among jewellers, who normally conduct their business in cash, have been severely hit. They have also been a constant factor backing the BJP. They are unlikely to forgive Modi or the BJP very soon.
Whatever their response (or of other similarly disenfranchized groups), it will be made apparent in the four upcoming assembly elections in which the BJP is either a contender or an incumbent; or whether this will be offset by gain in vote share among the aspirational class.
For the moment, Modi has the last word. As he said in Goa, in his first public speech after the demonetisation, “Analysts (and critics) have failed to recalibrate (after I assumed power) the metrics they used to assess previous governments and old-generation politicians. This is exactly why they have failed to grasp the import of what happened on 8 November."
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.
His Twitter handle is @capitalcalculus
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